Deepest global recession not seen since WW-II looms

The unprecedented sudden halt to global economic activities caused by the COVID-19 pandemic could lead to up to 60 million people globally facing extreme poverty thereby negating much of the recent progress made in reducing poverty, according to the International Finance Corporation (IFC).

The IFC Country Manager for Papua New Guinea and the Pacific, Australia, and New Zealand, Thomas Jacobs, has stated that the global economy is poised to witness the deepest global recession not seen since World War II.

In recent weeks, we have seen multiple downgrades to economic forecasts. For the IFC, as a sister organization of the World Bank and a member of the World Bank Group, what’s clearly concerning is the impact on people. We’ve seen COVID-19 exact a terrible toll.

And the concern is that this unprecedented crisis could push up to 60 million people globally into extreme poverty – erasing a lot of the recent progress made in reducing poverty.

“If you look across the East Asia and Pacific region, we know that the economic fallout from COVID-19 has severely dampened growth in the region – again significantly hindering efforts to reduce poverty,” Mr. Jacobs said.

He added that the economic growth in East Asia and the Pacific, excluding China, was projected to slow to 1.3% from 4.7% in 2019.

“Across the East Asia and Pacific region, private sector firms have been affected by cuts to revenue and access to capital, including foreign direct investment, at the same time as having to manage the need to pay employees, cover basic expenses and service debt. Similarly, financial institutions have been affected by reduced access to funds and a deterioration of their credit portfolio. They too need to pay employees, cover basic expenses and service debts,” Mr. Jacobs said.

Due to a drastic drop in global commodity trade price, the economy of Papua New Guinea (PNG) continues to face headings. According to the IFC official, the outlook for growth is being affected negatively by the spread of the coronavirus, the glut of the inability to deliver new resource projects.

At the same time, there are millions of people in the region who have been impacted either through job losses or the loss of other income, such as remittances, as well as a decrease in wealth amid asset price collapses and the need to cover basic expenses or to service debt.

Another point of concern expressed by the high-ranked development official was that, across the Pacific islands, nations have been impacted by the sudden halt to one of the most important revenue streams – tourism. The region is highly exposed in terms of this sector, which plays a vital part in the economy of the entire area.

“At the global level, one in every ten jobs is in the travel and tourism industry. According to the World Travel and Tourism Council, for every dollar spent on travel and tourism, over three dollars is generated in economic output. Tourism is, of course, the mainstay of most Pacific economies. In a country like Fiji, tourism contributes about 38% to the country’s GDP so, when tourism comes to a standstill, that’s a move that has a ripple effect across local economies,” he explained.

The IFC’s work in the Pacific is supported by the governments of Australia and New Zealand. Since July 2012 the IFC, in partnership with Australia and New Zealand, has delivered significant results for the Pacific, including mobilizing more than US$843 million in investment, delivering more than US$232 million in incremental lending to 2,485 small and medium-sized enterprises and improving access to basic infrastructure for 1.9 million people. The IFC’s projects across the Pacific span areas including infrastructure, financial inclusion, gender, and tourism.

All the funding provided by the International Finance Corporation in the Asia and Pacific region can be found on DevelopmentAid.org, under the Funding section.